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Monday, May 8, 2006

Advertiser Lawsuits Against Search Engines

In the past year, advertisers have brought at least four high-stakes class action lawsuits against search engines.  These lawsuits pose some interesting but basic questions about contract interpretation.

Two of the lawsuits involve "click fraud."  Click fraud is a term with multiple meanings, but let's assume it refers to an illegitimate click on an online advertisement.  Many (most?) search engine advertising contracts say that advertisers will pay a certain amount for each click delivered by the search engines.  Thus, advertisers are concerned that they are paying for illegitimate clicks.

Ultimately, this could be a straightforward contract interpretation issue.  Google's contract says that advertisers owe money for "actual clicks."  So what's an "actual click"?  Is it every click, regardless of legitimacy, or a click motivated only by proper intent?

We may not find out the answer to this question any time soon.  Google has entered into a preliminary settlement with one of the plaintiffs, and if approved, that settlement likely will have preclusive effect on the other lawsuit.  Some have complained that Google has settled the case too cheaply, so it's possible that the judge will scuttle the settlement or that enough advertisers will opt-out of it.  Otherwise, the settlement may calm the waters for the time being.

A third lawsuit has been filed against Google for failing to honor advertisers' instructions about advertising limits.  Google allows advertisers to establish daily limits on the quantity of advertising they want, and allegedly Google failed to honor these limits.  This lawsuit is ongoing.

A fourth lawsuit was filed last week against Yahoo.  This lawsuit alleges that Yahoo engaged in "syndication fraud" by placing the advertisements in inappropriate places (specifically, on pop-up and pop-under windows served by adware and on "typosquatted" pages).  This lawsuit raises some basic questions about the interplay of marketing material (where Yahoo made various statements that the advertisers want to treat as promises) and a fully integrated online contract, as well as how words like "highly targeted," "popular"/"high-quality" and "and more" will be interpreted.  I've deconstructed this complaint at my other blog (warning: I have strong views about the validity of this complaint).

These lawsuits reflect the huge growth in online advertising issues--as more gets directed to online advertising, disputes inevitably will follow.  But they also are a good reminder of the critical importance of precise and thoughtful drafting of online advertising agreements.

[Eric Goldman]

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